When Doom Loomed

In 2008, an appalling prospect loomed. The New York private equity company KKR was expected to re-structure the European semiconductor industry.

In 2006, NXP had been bought by a consortium led by KKR.

In early 2007, NXP was pulled out of Crolles2, Europe’s leading source of microelectronics process technology. Freescale also pulled out.

In 2008 the expected next move in the re-structuring process was that Infineon’s board would authorise a capital increase, issue more shares, and sell the newly created shares to KKR so giving KKR a 40-50 per cent stake in Infineon.

That was expected to be followed by KKR selling NXP to Infineon. Infineon’s former CEO, Dr Wolfgang Ziebart, opposed these plans which is why the Infineon supervisory board forced him out on June 1st.

The big issue was Infineon’s position as the No.2 automotive chip player with close ties to the all-important German car manufacturers.

The one thing semiconductor companies’ customers ask, when they fear that their might be a change of ownership at a supplier, is: ‘What effect will this have on the R&D?’

If the new owner was to be a finance house, and even worse a private equity house with a reputation for slashing R&D, then customers could get very upset. So Infineon’s precious ties with the German car-makers could have been be damaged.

But would Infineon’s German car company customers trust an NXP-dominated Infineon? That’s the problem.

And an NXP-dominated Infineon is what was expected from the re-structuring. NXP’s CEO (now Philips’ CEO) Frans van Houten, was close to KKR, and it was thought that it might have been significant that Ziebart’s successor, Peter Bauer, was not to be called ‘CEO’ but ‘Spokesman of the Management Board’.

No one knew the reason for this peculiar title, but it could be that it was dreamt up so that there wouldn’t any arguments about status when, and if, van Houten was installed as CEO of an NXP-Infineon combination.

So that was the expected scenario. KKR takes control of Infineon, then merges NXP and Infineon, then sells off Infineon’s wireless chip business. But, to most people, this proposed re-structuring is doomed to failure.

Thank the Lord it never happened.

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